Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@Jinse Finance
People often make a mistake when assessing Bitcoin, which leads them to severely underestimate its potential.
Last week at dinner, a financial advisor asked me a great question:
Does Bitcoin have to rise to $200,000 for the dollar to collapse?
This is a great question because it reveals the ambiguous logic that many people use when talking about Bitcoin. In my experience, they often say things like:
Bitcoin is digital gold, while the United States is abusing the dollar; therefore, Bitcoin is valuable.
These words are not wrong - oh, I might have said something similar on CNBC as well. But this way of speaking is quite lazy. Specifically, they have conflated two different arguments.
This confusion is harmful because it leads people to significantly underestimate the full potential of Bitcoin and the likelihood of its success. If you separate these arguments and consider them individually, you will have a better understanding of Bitcoin.
Argument 1: Bitcoin will succeed
When you buy Bitcoin, the first bet you are making is that it will succeed. For me, this means that one day it will stand alongside gold, becoming an established and widely recognized store of value, held by various types of investors.
In the past 15 years, Bitcoin has made tremendous progress towards this goal. It has grown from nothing to an asset worth over $1 trillion, held by 60% of the world's large hedge funds, many large asset management companies, and even some countries. It has experienced bull markets and bear markets, scandals and breakthroughs, and has gone through various regulatory frameworks. Now, most people acknowledge that it will continue to exist.
But it is still immature. Today, most institutional investors still do not hold Bitcoin. Many financial institutions still prohibit holding it. The media still does not trust it. And many people still do not understand it. We do not often hear such situations regarding gold.
A simplified, zero-sum view of this argument is that Bitcoin will take market share from gold. However, I believe a more likely scenario is that Bitcoin will gradually expand the size of the "store of value" market.
For our purposes, this is actually not important. The market capitalization of Bitcoin is $1.3 trillion, which is only 7% of gold's $18 trillion market cap. I don't know if the mature market cap of Bitcoin will be half of gold, equivalent to gold, or double that of gold, or if it will attract new groups of investors. But I am sure it will not just be 7%.
Therefore, investing in Bitcoin is betting that it will continue to evolve along its current path from a small niche market to a mainstream market. This has also been the main driving force behind its astonishing returns over the past 15 years. I believe there is still a lot of room for growth.
(By the way: If the market value of Bitcoin grows to be comparable to that of gold, then each Bitcoin will be worth about $900,000.)
Point 2: Governments will continue to devalue fiat currencies.
When you buy Bitcoin, your second bet is that the governments of the United States and other countries will continue to print money and incur debt, which will devalue fiat currency. Following this reasoning, this will not only increase the value of "store of value" assets like Bitcoin and gold but also encourage more investors to allocate to such assets, further expanding the market size.
In the United States, we now have $36 trillion in federal debt - and it increases by $1 trillion every 100 days. This year, we will spend $900 billion to repay this debt, and interest payments have become one of the largest items in the federal budget. The Congressional Budget Office estimates that by 2054, the debt will reach $142 trillion.
In my opinion, such a scale of debt and money printing will greatly expand the "value storage" market, as investors will seek a safe haven from this madness. Could the current market size of 20 trillion dollars potentially grow to 50 trillion dollars within 10 years? Or 100 trillion dollars?
I want to state the obvious: if the "store of value" market expands threefold in the next 10 years, and Bitcoin merely maintains its 7% share of that market, then the price of Bitcoin will also triple.
(It is worth noting that many people in the Bitcoin community—including myself—believe that Bitcoin has other uses beyond the traditional "store of value" purpose. For example, I believe that one day Bitcoin will be used as an alternative currency for settling international payments. Any other use case arguments like this are considered additional benefits.)
Conclusion: Why This Analytical Framework is Powerful
The importance of these arguments lies in the fact that they are both cumulative and independent of each other.
What I mean by mutually independent is that as an investor, you only need one of the arguments to be valid in order to succeed.
Imagine if Bitcoin's market cap grew to 25% of the current gold market, with no other changes. No market expansion, no new use cases, and no concerns about the rising debt spiral. Great! In this scenario, the price of Bitcoin would reach $214,000, about four times its current level.
Or imagine that Bitcoin's market share has not increased, but the "store of value" market size has tripled. That would be great! Then the price of Bitcoin would also triple.
If both of these things happen (and it would be even better if those extra opportunities could be realized), that would be really great. The good news is that I think this is the most likely scenario.
So, in response to my advisor friend's question, the answer is: No, Bitcoin does not need the dollar to collapse to rise to $200,000. It just needs to capture a small share of the existing gold market to reach that price.
But as governments around the world continue to abuse their currencies, Bitcoin is also maturing, and it may not only reach this price level but also far exceed it.
The content is for reference only, not a solicitation or offer. No investment, tax, or legal advice provided. See Disclaimer for more risks disclosure.
Bitwise: The dual drivers that can make Bitcoin rise to $200,000
Author: Matt Hougan, Chief Investment Officer of Bitwise; Translated by: 0xjs@Jinse Finance
People often make a mistake when assessing Bitcoin, which leads them to severely underestimate its potential.
Last week at dinner, a financial advisor asked me a great question:
Does Bitcoin have to rise to $200,000 for the dollar to collapse?
This is a great question because it reveals the ambiguous logic that many people use when talking about Bitcoin. In my experience, they often say things like:
Bitcoin is digital gold, while the United States is abusing the dollar; therefore, Bitcoin is valuable.
These words are not wrong - oh, I might have said something similar on CNBC as well. But this way of speaking is quite lazy. Specifically, they have conflated two different arguments.
This confusion is harmful because it leads people to significantly underestimate the full potential of Bitcoin and the likelihood of its success. If you separate these arguments and consider them individually, you will have a better understanding of Bitcoin.
Argument 1: Bitcoin will succeed
When you buy Bitcoin, the first bet you are making is that it will succeed. For me, this means that one day it will stand alongside gold, becoming an established and widely recognized store of value, held by various types of investors.
In the past 15 years, Bitcoin has made tremendous progress towards this goal. It has grown from nothing to an asset worth over $1 trillion, held by 60% of the world's large hedge funds, many large asset management companies, and even some countries. It has experienced bull markets and bear markets, scandals and breakthroughs, and has gone through various regulatory frameworks. Now, most people acknowledge that it will continue to exist.
But it is still immature. Today, most institutional investors still do not hold Bitcoin. Many financial institutions still prohibit holding it. The media still does not trust it. And many people still do not understand it. We do not often hear such situations regarding gold.
A simplified, zero-sum view of this argument is that Bitcoin will take market share from gold. However, I believe a more likely scenario is that Bitcoin will gradually expand the size of the "store of value" market.
For our purposes, this is actually not important. The market capitalization of Bitcoin is $1.3 trillion, which is only 7% of gold's $18 trillion market cap. I don't know if the mature market cap of Bitcoin will be half of gold, equivalent to gold, or double that of gold, or if it will attract new groups of investors. But I am sure it will not just be 7%.
Therefore, investing in Bitcoin is betting that it will continue to evolve along its current path from a small niche market to a mainstream market. This has also been the main driving force behind its astonishing returns over the past 15 years. I believe there is still a lot of room for growth.
(By the way: If the market value of Bitcoin grows to be comparable to that of gold, then each Bitcoin will be worth about $900,000.)
Point 2: Governments will continue to devalue fiat currencies.
When you buy Bitcoin, your second bet is that the governments of the United States and other countries will continue to print money and incur debt, which will devalue fiat currency. Following this reasoning, this will not only increase the value of "store of value" assets like Bitcoin and gold but also encourage more investors to allocate to such assets, further expanding the market size.
In the United States, we now have $36 trillion in federal debt - and it increases by $1 trillion every 100 days. This year, we will spend $900 billion to repay this debt, and interest payments have become one of the largest items in the federal budget. The Congressional Budget Office estimates that by 2054, the debt will reach $142 trillion.
In my opinion, such a scale of debt and money printing will greatly expand the "value storage" market, as investors will seek a safe haven from this madness. Could the current market size of 20 trillion dollars potentially grow to 50 trillion dollars within 10 years? Or 100 trillion dollars?
I want to state the obvious: if the "store of value" market expands threefold in the next 10 years, and Bitcoin merely maintains its 7% share of that market, then the price of Bitcoin will also triple.
(It is worth noting that many people in the Bitcoin community—including myself—believe that Bitcoin has other uses beyond the traditional "store of value" purpose. For example, I believe that one day Bitcoin will be used as an alternative currency for settling international payments. Any other use case arguments like this are considered additional benefits.)
Conclusion: Why This Analytical Framework is Powerful
The importance of these arguments lies in the fact that they are both cumulative and independent of each other.
What I mean by mutually independent is that as an investor, you only need one of the arguments to be valid in order to succeed.
Imagine if Bitcoin's market cap grew to 25% of the current gold market, with no other changes. No market expansion, no new use cases, and no concerns about the rising debt spiral. Great! In this scenario, the price of Bitcoin would reach $214,000, about four times its current level.
Or imagine that Bitcoin's market share has not increased, but the "store of value" market size has tripled. That would be great! Then the price of Bitcoin would also triple.
If both of these things happen (and it would be even better if those extra opportunities could be realized), that would be really great. The good news is that I think this is the most likely scenario.
So, in response to my advisor friend's question, the answer is: No, Bitcoin does not need the dollar to collapse to rise to $200,000. It just needs to capture a small share of the existing gold market to reach that price.
But as governments around the world continue to abuse their currencies, Bitcoin is also maturing, and it may not only reach this price level but also far exceed it.